Bituminous Casualty Corporation Vs. Sand Livestock Systems, Inc. , A Nebraska Corporation Sand Systems, Inc. , A Nebraska Corporation Furnas County Farms , A Nebraska General Partnership And Cori A. Gossage , Individually And As Administrator Of The Estate Of Raymond Charles Gossage, Jr., And As Next Friend And Mother Of Brian M. Gossage ( 2007 )

IN THE SUPREME COURT OF IOWA
No. 135 / 05-1063
Filed February 23, 2007
BITUMINOUS CASUALTY CORPORATION,
An Illinois Insurance Company,
Movant,
vs.
SAND LIVESTOCK SYSTEMS, INC., a
Nebraska Corporation; SAND SYSTEMS, INC.,
a Nebraska Corporation; FURNAS COUNTY
FARMS, a Nebraska General Partnership; and
CORI A. GOSSAGE, Individually and as
Administrator of the Estate of Raymond Charles
Gossage, Jr., and as Next Friend and Mother of
Brian M. Gossage,
Respondents.
________________________________________________________________________
Certified questions of law from the United States District Court for
the Northern District of Iowa, Paul A. Zoss, Judge.
In a certified question, the federal district court asked the supreme
court to determine whether a pollution exclusion provision in an
insurance policy bars coverage for a death caused by the accumulation of
carbon monoxide inside a washroom. CERTIFIED QUESTION
ANSWERED.
Timothy W. Hamann and Jared Knapp of Clark, Butler, Walsh &
Hamann, Waterloo, for movant.
Donald H. Molstad, Sioux City, and Patrick W. O’Bryan,
Des Moines, for respondent Sand Livestock Systems, Inc.
2
Robert A. Burnett, Jr., Des Moines, for respondent Gossage.
Laura A. Foggan of Wiley, Rein & Fielding, Washington, D.C., and
David N. May of Bradshaw, Fowler, Proctor & Fairgrave, P.C.,
Des Moines, for amicus curiae Complex Insurance Claims Litigation
Association.
3
STREIT, Justice.
Is carbon monoxide pollution? Sand Livestock was sued for
wrongful death after a man died of carbon monoxide poisoning in a hog
confinement facility the company designed and built. Sand Livestock’s
insurer, Bituminous Casualty, sought a declaration that Sand
Livestock’s insurance did not cover the incident because of a pollution
exclusion provision. In response to a certified question, we find the
provision unambiguously excludes coverage. We do not decide whether a
reasonable policy holder would expect the exclusion to only pertain to
“traditional environmental pollution.”
I. Facts and Prior Proceedings
Sand Livestock constructed a hog confinement facility in Ida
County, Iowa for Furnas County Farms. During the construction, Sand
Livestock installed a propane power washer in the facility’s washroom.
In 2002, Raymond Gossage, an employee of Furnas County Farms, was
working at the facility. While using the toilet in the washroom, Gossage
was overcome by carbon monoxide fumes. The propane gas heater for
the pressure washer produced the fumes. Furnas was later cited by the
Iowa Occupational Safety and Health Administration for having a
propane device in a room without an outside air supply. According to
the autopsy, Gossage died as a result of asphyxiation due to carbon
monoxide poisoning.
In 2003, Gossage’s widow filed a wrongful death suit against Sand
Livestock in the Ida County, Iowa district court. Sand Livestock
requested its insurer, Bituminous Casualty, provide a legal defense and
indemnification pursuant to two insurance policies. Bituminous had
4
issued Sand Livestock a “Commercial Lines Policy” and a “Commercial
Umbrella Policy” for the time of Gossage’s death.
The Commercial Lines Policy contained an endorsement entitled
“Total Pollution Exclusion with a Hostile Fire Exception,” which stated:
This insurance does not apply to:
f. Pollution
(1) “Bodily injury” or “property damage” which
would not have occurred in whole or part
but for the actual, alleged or threatened
discharge, dispersal, seepage, migration,
release or escape of “pollutants” at any time.
“Pollutants” are defined in the policy as “any solid, liquid, gaseous or
thermal irritant or contaminant, including smoke, vapor, soot, fumes,
acids, alkalis, chemicals and waste.”
The Commercial Umbrella Policy contained an endorsement
entitled “Pollution Exclusion” which stated:
It is agreed that this policy does not apply:
A. to any liability for “bodily injury,” “property damage” or
“personal and advertising injury” arising out of the
actual, alleged or threatened discharge, dispersal,
release or escape of “pollutants at any time.”
....
C. to any obligation of the “insured” to indemnify or
contribute to any party because of “bodily injury,”
“property damage” or “personal and advertising injury”
arising out of the actual, alleged or threatened
discharge, dispersal, release or escape of “pollutants.”
D. to any obligation to defend any “suit” or “claim” against
any “insured” alleging “bodily injury,” “property
damage” or “personal and advertising injury” and
seeking damages for “bodily injury,” “property damage”
or “personal and advertising injury” arising out of the
actual, alleged or threatened discharge, dispersal,
release or escape of “pollutants.”
....
5
“Pollutants” means any solid, liquid, gaseous, or
thermal irritants or contaminant, including smoke,
vapor, soot, fumes, acids, alkalis, chemicals and
waste. . . .
In 2004, Bituminous filed a complaint in federal court seeking a
declaration it has no duty to pay damages to Mrs. Gossage or to defend
or indemnify Sand Livestock for the death of Gossage because of the
pollution exclusions contained in both policies. A year later, Bituminous
filed a motion for summary judgment. Bituminous claimed the pollution
exclusions in the policies preclude coverage. Sand Livestock and Mrs.
Gossage argued the exclusions do not apply to the particular facts of this
case and Bituminous is obligated to defend Sand Livestock and cover any
losses that may arise if Sand Livestock is found to be liable.
In its ruling, the federal court noted that because we have not
interpreted a pollution exclusion in an insurance policy in this particular
context, it must “predict” how we would do so. The federal court stated
“courts throughout the United States have interpreted pollution
exclusions such as those contained in the policies at issue, and have
reached a dizzying array of results.” See Claudia G. Catalano,
Annotation, What Constitutes “Pollutant,” “Contaminant,” “Irritant,” or
“Waste” within Meaning of Absolute or Total Pollution Exclusion in Liability
Insurance Policy, 98 A.L.R. 5th 193 (2002). After reviewing other courts’
approaches to this issue, the federal court concluded “both parties’
positions are supported by case law from other jurisdictions, and there is
no Iowa case either directly on point or sufficiently definitive to allow this
court to predict how the Iowa Supreme Court would decide the issue
presented here.” Consequently, the federal court certified to us the
following question:
6
Do the total pollution exclusions in the policies issued by
Bituminous to Sand Livestock relieve Bituminous from any
obligation to defend or indemnify Sand Livestock, or to pay
damages to Mrs. Gossage, for claims arising out of the death
of Raymond Gossage?
II. Merits
The issue before us is whether the pollution exclusions found in
Sand Livestock’s insurance policies exclude coverage for a death caused
by the release of carbon monoxide fumes inside a hog confinement
facility.
Mrs. Gossage and Sand Livestock urge us to find the policies in
question provide coverage for Gossage’s death. Mrs. Gossage argues the
pollution exclusions are ambiguous because it is unclear whether their
scope extends beyond “traditional environmental pollution.” Mrs.
Gossage reminds us an ambiguous provision is construed in favor of the
insured. Under slightly different reasoning, Sand Livestock argues the
doctrine of reasonable expectations applies. Sand Livestock argues a
reasonable policyholder would expect the pollution exclusions to prevent
coverage for “traditional hog confinement problems associated with
pollution wastes and smells, and not wrongful death claims based on an
alleged negligent design of a hog confinement facility which allowed
carbon monoxide to accumulate.” Bituminous argues the pollution
exclusions clearly and succinctly prevent coverage for carbon monoxide
poisoning and Bituminous urges us to hold it has no duty to defend or
indemnify Sand Livestock.
A. Whether the Pollution Exclusions are Ambiguous
We begin with our rules of contract interpretation peculiar to
insurance policies.
The cardinal principle in the construction and interpretation
of insurance policies is that the intent of the parties at the
7
time the policy was sold must control. Except in cases of
ambiguity, the intent of the parties is determined by the
language of the policy. “An ambiguity exists if, after the
application of pertinent rules of interpretation to the policy, a
genuine uncertainty results as to which one of two or more
meanings is the proper one.” Because of the adhesive nature
of insurance policies, their provisions are construed in the
light most favorable to the insured. Exclusions from
coverage are construed strictly against the insurer.
LeMars Mut. Ins. Co. v. Joffer, 574 N.W.2d 303, 307 (Iowa 1998) (citations
omitted).
“[W]hen an insurer has affirmatively expressed coverage through
broad promises, it assumes a duty to define any limitations or
exclusionary clauses in clear and explicit terms.” Grinnell Mut. Reins. Co.
v. Jungling, 654 N.W.2d 530, 536 (Iowa 2002) (citing Amco Ins. Co. v.
Haht, 490 N.W.2d 843, 845 (Iowa 1992)). Words that are not defined in
the policy are given “their ordinary meaning, one that a reasonable
person would understand them to mean.” Id. (citing A.Y. McDonald
Indus. v. Ins. Co. of N. Am., 475 N.W.2d 607, 619 (Iowa 1991)). This is
because we interpret insurance policies from the standpoint of an
ordinary person, not a specialist or expert. Id. (citing Haht, 490 N.W.2d
at 845).
Where the meaning of terms in an insurance policy is
susceptible to two interpretations, the one favoring the
insured is adopted. However, the mere fact that parties
disagree on the meaning of terms does not establish
ambiguity. The test is an objective one: Is the language fairly
susceptible to two interpretations?
N. Star Mut. Ins. Co. v. Holty, 402 N.W.2d 452, 454 (Iowa 1987) (citations
omitted).
Bituminous argues the pollution exclusions unambiguously apply
to the facts of this case. It claims carbon monoxide is a “pollutant” as
defined by the policy and Gossage’s death was clearly due to “dispersal,”
8
“release,” or “escape” of this “pollutant.” The exclusions define
“pollutant” as “any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis,
chemicals and waste.” According to Bituminous, “[t]here is nothing in
this broad definition which would exclude carbon monoxide.”
Bituminous characterizes carbon monoxide as a gaseous irritant or
contaminant. Carbon monoxide is defined in the dictionary as “a
colorless odorless very toxic gas.” Webster’s Third New International
Dictionary 336 (unabr. ed. rev. 2002).
We agree with Bituminous that carbon monoxide falls within the
extremely broad language of the policies’ definition of “pollutants.” It is
difficult to say the exclusions are “fairly susceptible to two
interpretations,” which is required for us to find the exclusions
ambiguous.
Mrs. Gossage argues the exclusion is ambiguous because it is
unclear whether the exclusion extends beyond “traditional environmental
pollution.” She claims her position is supported by the original purpose
of pollution exclusions. One commentator explained “the available
evidence most strongly suggests that the absolute pollution exclusion
was designed to serve the twin purposes of eliminating coverage for
gradual environmental degradation and government-mandated cleanup
such as Superfund response cost reimbursement.” Jeffrey W. Stempel,
Reason and Pollution: Correctly Construing the “Absolute” Exclusion in
Context and in Accord with Its Purpose and Party Expectations, 34 Torts &
Ins. L.J. 1, 32 (Fall 1998); see Am. States Ins. Co. v. Koloms, 687 N.E.2d
72, 81 (Ill. 1997) (“Our review of the history of the pollution exclusion
amply demonstrates that the predominate motivation in drafting an
9
exclusion for pollution-related injuries was the avoidance of the
‘enormous expense and exposure resulting from the “explosion” of
environmental litigation.’ ”); Bernhardt v. Hartford Fire Ins. Co., 648 A.2d
1047, 1049–50 (Md. Ct. App. 1995) (detailing the evolution of pollution
exclusions). But the plain language of the exclusions at issue here
makes no distinction between “traditional environmental pollution” and
injuries arising from normal business operations. See Cincinnati Ins. Co.
v. Becker Warehouse, Inc., 635 N.W.2d 112, 120 (Neb. 2001).
The Supreme Court of Illinois, which analyzed a nearly identical
exclusion, acknowledged:
A close examination of this language reveals that the
exclusion (i) identifies the types of injury-producing
materials which constitute a pollutant, i.e., smoke, vapor,
soot, etc., (ii) sets forth the physical or elemental states in
which the materials may be said to exist, i.e., solid, liquid,
gaseous or thermal, and (iii) specifies the various means by
which the materials can be disseminated, i.e., discharge,
dispersal, release or escape. To that extent, therefore, the
exclusion is indeed “quite specific,” and those courts wishing
to focus exclusively on the bare language of the exclusion
will have no difficulty in concluding that it is also
unambiguous.
Koloms, 687 N.E.2d at 79. Although the court in Koloms looked beyond
the “bare language of the exclusion” to find ambiguity, we find it
inappropriate and unwise to do so. An ambiguity exists only if the
language of the exclusion is “susceptible to two interpretations.” Holty,
402 N.W.2d at 454. We may not refer to extrinsic evidence in order to
create ambiguity. Becker Warehouse, 635 N.W.2d at 120; Quadrant
Corp. v. Am. States Ins. Co., 110 P.3d 733, 742 (Wash. 2005). Instead,
we must enforce unambiguous exclusions as written. Leuchtenmacher v.
Farm Bureau Mut. Ins. Co., 461 N.W.2d 291, 294 (Iowa 1990). The plain
language in the exclusions encompasses the injury at issue here because
10
carbon monoxide is a gaseous irritant or contaminant, which was
released from the propane power washer. See Assicurazioni Generali,
S.p.A. v. Neil, 160 F.3d 997, 1006 (4th Cir. 1998) (finding pollution
exclusion unambiguously barred coverage for carbon monoxide
poisoning); Essex Ins. Co. v. Tri-Town Corp., 863 F. Supp. 38, 41 (D.
Mass. 1994) (same); Bernhardt, 648 A.2d at 1052 (same).
B. Whether a Reasonable Policyholder Would Expect
Coverage Under These Facts
Sand Livestock argues Bituminous should be required to provide
coverage based on the doctrine of reasonable expectations, which Iowa
recognizes. Sand Livestock claims an ordinary lay person would not
comprehend the breadth of the pollution exclusions. An insured may
utilize the doctrine of reasonable expectations to avoid an exclusion that
“ ‘(1) is bizarre or oppressive, (2) eviscerates a term to which the parties
have explicitly agreed, or (3) eliminates the dominant purpose of the
policy.’ ” Iowa Comprehensive Petroleum Underground Storage Tank Fund
Bd. v. Federated Mut. Ins. Co., 596 N.W.2d 546, 551 (Iowa 1999) (quoting
Benavides v. J.C. Penney Life Ins. Co., 539 N.W.2d 352, 356 (Iowa 1995)).
However, in order for the doctrine to apply, the insured must show
“ ‘circumstances attributable to the insurer that fostered coverage
expectations’ or that ‘the policy is such that an ordinary layperson would
misunderstand its coverage.’ ” Id. (quoting Benavides, 539 N.W.2d at
357).
Because this case comes to us as a certified question from the
federal district court, this issue is not properly before us. Iowa Code
section 684A.1 (2003) gives this court the power to answer certified
“questions of law.” The applicability of the doctrine of reasonable
expectations is a question of fact that is not within the scope of chapter
11
684A. Wright v. Brooke Group Ltd., 652 N.W.2d 159, 170 n.1 (Iowa
2002). Sand Livestock and Mrs. Gossage are free to argue the doctrine of
reasonable expectations to the federal district court.
III. Conclusion
We find the pollution exclusions in Sand Livestock’s insurance
policies bar coverage for Gossage’s death, which was caused by carbon
monoxide poisoning. Accordingly, our answer to the certified question is
“yes.”
CERTIFIED QUESTION ANSWERED.